TECH TALK: Tech Trends: Application Service Providers

The technical term for a company such as Salesforce.com is an application service provider (ASP). That may make anybody who remembers the boom and bust of the first generation of ASPs during the dotcom bubble sceptical. Those forerunners also promised a software revolution by hosting the software applications of companies. But they failed because they simply recreated each client’s complex and unwieldy datacentre in their own basements, and never overcame the old problems of installation and integration with other software. With each new customer, the old ASPs had, in effect, to build another datacentre; there were few economies of scale.

The second generation of ASPs is different. When Salesforce.com signs up a new client, it simply creates an account on the software platform that ties together its farms of server-computers. In investor jargon, it therefore has huge operating leverage: the initial start-up costs for hardware and software were high, but since break-even each new client’s revenues have been almost pure profit.
They use two main arguments against the ASPs. First, software as a service is much harder to customise for the special needs of big firms. Second, it is harder to make it work with a firm’s existing software applications. Companies want their CRM to integrate with their billing system and everything else, says George Ahn, the CRM boss at PeopleSoft. Salesforce.com’s mottoNo Softwareis thus hot air, says Mr Ahn, because it takes lots of software and fiddling to get it to link to the rest of a client’s systems. There is no magic pixie dust that makes integration go away.

Mr Benioff [of Salesforce.com] shrugs. The evolutionary advance of the second generation of ASPs over the first is precisely that customers can now customise their pages, as easily as consumers arrange their Yahoo! or AOL pages to their liking. And the task of integration too has been solved. In fact, argues Mr Benioff, clients can do themselves a favour by letting Salesforce.com worry about hooking their various systems together. Increasingly, the vision says, all that users need to understand is how to navigate a web page, leaving them to get on with life. That is the same for Salesforce.com as for Google.

Data Mining

Extracting information on customers in real-time is the realm of data mining. The Economist wrote recently:

The field is now advancing on three new fronts. The first is the ability to mine data in real time, and use the results to adjust pricing on the fly, for example. The second is the vogue for predictive analytics, the art of using historical data not just to explain past trends, but to predict future ones. Finally, there is growing interest in systems that can analyse messy unstructured data, such as text on the web, rather than just structured data stored in orderly databases.

Mike Rote, head of data mining at Teradata, a firm based in Dayton, Ohio, says a key element in making real-time analysis possible is that data warehouses are now integrated with the analytic software. In the past, the data lived in databases that were good at handling day-to-day transactions, but not so good at analysis. Preparing the data for analysis was a slow and laborious process. Another thing that has helped, says Mr Rote, is parallelism, where different processors within a large computer can tackle different chunks of data. This speeds things up and allows very large data sets to be analysed. For example, a large telecoms firm with a record of all telephone calls made by each customer may wish to monitor local and international calling patterns from day to day. This requires the rapid aggregation of a mountain of data that may take up many terabytes (millions of megabytes, or trillions of bytes)just the sort of thing modern BI systems can do.